Chapter 8, Problem 1ADM

A.

To determine

Accounts receivable turnover

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In simple, it indicates the number of times the average amount of net accounts receivables has been collected during a particular period.

Average collection period:

Average collection period indicates the number of days taken by a business to collect its outstanding amount of accounts receivable on an average.

(a)

To calculate: The accounts receivable turnover of Company A and Incorporation B.

B.

To determine

To calculate: The day’s sales in receivables of Company A and Incorporation B.

C.

To determine

To evaluate: The relative efficiency between Company A and Incorporation B in collecting accounts receivables.

D.

To determine

To explain: The possible reason for the difference in average accounts receivable turnover ratio for Company B and Incorporation A.